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CMA Final · Strategic Performance Management and Business Valuation · Economic Efficiency of the Firm - Performance Analysis

In performance analysis of a firm, a producer is said to be technically efficient when it:

A firm is technically efficient when it obtains the maximum possible output from a given set of inputs, or uses the minimum inputs for a given output. It is a physical input-output concept, unlike price or profit-based measures.

  1. AProduces the maximum possible output from a given set of inputsCorrect
  2. BSells its output at the highest price in the market
  3. CUses the cheapest inputs regardless of the quantity of output
  4. DEarns a profit margin above the industry average

Explanation

Technical efficiency concerns the physical relationship between inputs and output: no more output can be obtained from the same inputs, or equivalently no fewer inputs can produce the same output. Pricing or profit margin comparisons relate to allocative efficiency or profitability, not technical efficiency.

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